The CO2 crisis was big news in the summer of 2018. We all learned how important carbon dioxide was to the drinks industry and food packaging.
The crisis defied normal supply chain assumptions. There were serious losses suffered, but whose responsibility were they - who in the chain took the hit?
This wasn't an area that contracts clearly provided for. If parties wanted to avoid a big falling out negotiation was needed.
The pressure points exposed by these discussions went to the heart of some of the parts of supply agreements often taken for granted. The idea that a supplier could get away with not supplying at all, without liability, seemed really odd. The effect on rights to terminate and exclusivity also seemed potentially unfair.
Learning points? Well, if something is key for your business, don't accept standard T&Cs that avoid liability. Do look at boilerplate clauses in this light. And if something seems unfair but is presented as a clear legal position, don't roll over. There are almost always cracks into which you can push a negotiation crowbar, especially in high stress situations.
I was contacted by a fair few users who couldn't get CO2 and were concerned by the way their distributors were handling it. The approach by distributors was to 'declare' that a Force Majeure event had happened. That, they said, meant that there was no breach of contract or liability, there was no obligation to supply and that exclusivity restrictions still applied. Essentially - the distributor said they couldn't supply, but were trying to avoid any liability or harm to their long-term business.
Force Majeure doesn't have a set meaning. It means what it says in your contract, but generally (and in these cases) it means that a party doesn't have to comply with a contract if performance is made impossible or extremely difficult by circumstances beyond its control.
So far so good. It may be that for some of the crisis there was a real Force Majeure event. But the wording normally said that only applied if the distributor is "unable" to perform. That is pretty strong. Even if CO2 was much more expensive, that doesn't mean it was impossible to obtain. If it was just difficult or commercially unviable to get it, then sorry, that's not Force Majeure.
Distributors continued to use the Force Majeure argument even when CO2 started to appear again in limited amounts. I don't think they should have been able to. While you can understand that there wasn't enough to supply all customers or timetables that makes no difference. If there was CO2 in their hands and they used it to supply someone else, that isn't Force Majeure, that was their commercial decision.
So, in short, there were good arguments that CO2 distributors were in breach of contract for some of the 'crisis' period. The shortages caused losses that could have been claimable. In many cases the distributors didn't end up with any liability. I know it wasn't necessarily their fault that there was no CO2, but the contracts they agreed were to supply it. If they couldn't supply, then that was to at least a degree their risk. I also have sympathy with the end users who generally carried the liability can.
This analysis brought up other issues. If it wasn't Force Majeure what was the effect of not supplying? Well, the contracts would also often have a limitation of liability clause by reference to the value of the contract. The cost of CO2 isn't high when compared to potential losses from not having it so, with a bit of compensation in their favour from a claim, users would also tend to look at termination and using other suppliers.
There may well have been rights to terminate for users either in the contracts or from the common law, but termination has risks unless there is a clear right. That may be a lesson for your next contract negotiation - a right to terminate when supply is interrupted for a set period.
What seemed to upset end users most was that distributors continued to assert that exclusivity provisions applied. Where you are upset with your supplier, they can't supply, and you see competitors getting a better service from an alternative, that is really frustrating. Using the arguments above and other analysis, there were ways to address the situation.
Those who acted quickly profited. They took advantage of their arguments to be able to negotiate with distributors. They obtained discounts, agreed early termination or used the pressure of these points to obtain earlier supply. Those who left it later still probably could have used the same arguments, but by then the crisis had abated and the distributors put up a stronger front.